The chronic medical illness has affected my ability to take the most rigorous schedule and led me to withdraw from one class and also take a year break in my undergraduate education. I'm wondering how this will affect my grad school chances. I have excellent LOR and GRES, good GPA. Should the illness be discussed in SOP or elsewhere?
Do any of your letter writers know about your illness and can speak to your strength in spite of it? If your application on its face is strong (ignoring the withdrawn course and year gap), a mention of your illness and overcoming it in your personal statement (not your statement of purpose!) might be a good thing to do. I do not think they will look down upon you for this, quite the opposite. From what I have read, they cannot discriminate against you simply based upon your illness so that shouldn't be a problem (see ADA). If it's clear that you're dedicated, I think you'll be okay.
If your letters are good, you have research experience (if that's common in your field), etc., I wouldn't disclose at this point. While they can't, and in most cases won't want to, discriminate against you, it creates an awkward situation precisely because they can't ask questions. At most, say you had to take a year off because of health issues. You can always disclose in the future if that becomes necessary.
I say this as someone with a highly visible disability who disclosed while corresponding with potential advisors but not in the application.